What the hard data says:
Led by slower growth in employment-related indicators, the Chicago Fed National Activity Index (CFNAI) moved down to +0.08 in March from +0.27 in February. Two of the four broad categories of indicators that make up the index decreased from February, and one category made a negative contribution to the index in March. The index’s three-month moving average, CFNAI-MA3, decreased to +0.03 in March from +0.16 in February, but remained positive for the fourth consecutive month. [Link to News Release]
U.S. Hardens Stance on Canada Trade, Targeting Lumber The Trump administration is taking retaliatory action against Canada over a trade dispute, moving to impose a 20% tariff on softwood lumber that is typically used to build single-family homes.
Mr. Ross said the tariff would be applied retroactively and imposed on Canadian exports to the U.S. of about $5 billion a year. He said the dispute centers on Canadian provinces that have been allegedly allowing loggers to cut trees down at improperly subsidized costs and sell them at lower prices.
The decision is preliminary and the Commerce Department will need to make a final determination. After that, the U.S. International Trade Commission will also need to find that the U.S. industry has suffered injury before any tariff is levied. But even a preliminary decision has immediate real-world consequences, by discouraging importers from buying lumber from Canada.
“We tried to negotiate a settlement but we were unable,” just as previous administrations were also unable to resolve the dispute with Canada, Mr. Ross said, adding that the Trump administration has notified Canada of its decision.
The Canadian government said late Monday it “disagrees strongly” with the Commerce Department’s decision, arguing the reasoning was based on “baseless and unfounded” allegations from the U.S. lumber industry. (…)
(…) Canadian imports represent about 28% of all softwood lumber purchased in the U.S., according to an analysis by the National Association of Home Builders, a trade group.
Based on analysis last year, a builder spends an average of $15,413 for the softwood lumber in a single-family home, or about 7% of the total construction cost of a home. Lumber cost increases so far this year have added an estimated $3,000 to the cost of building a typical home, according to the home builders’ association. (…)
The prospect of U.S. duties on Canadian lumber imports has driven up prices this year, with lumber futures up more than 25% in the early months of 2017 and peaking at their highest point in over 12 years. (…)
From NBF:
Just how significant is the latest development in the long-running U.S.-Canada softwood lumber dispute? While the import duty of as much as 24% imposed by the U.S. will hit the forestry industry on the chin, the overall impact on Canada’s economy is likely to be limited. Note that Canada exported less than US$6 billion worth of lumber to the U.S. last year, accounting for just 1.2% of total exports. In other words, even if lumber exports to the U.S. dives to zero ─ which has never occurred in the three decades of lumber-related trade disputes between the U.S. and Canada ─, the net impact on Canada’s GDP would be less than half a percentage point. British Columbia and New Brunswick stand to lose the most from the U.S. import duty, although it’s worth noting that forestry, logging and sawmill activity account for less than 2% of GDP in both provinces. How about the impact on the labour market? At the end of last year there were less than fifty thousand jobs left in forestry, logging and support activities, or less than 0.3% of total employment in Canada. So, why even bother talking about the U.S. import duty? While not significant in itself, this latest chapter in the softwood lumber dispute could give clues about how hard-line the Trump administration aims to be when renegotiating NAFTA.
Trump Orders Plan to Cut Corporate Tax Rate to 15% President Trump has ordered aides to draft a tax plan that slashes the corporate tax rate to 15%, even if that means a loss of revenue and exacerbating the plan’s procedural and partisan hurdles.
During a meeting in the Oval Office last week, Mr. Trump told staff he wants a massive tax cut to sell to the American public, these people said. He told aides it was less important to him that such a plan could add to the federal budget deficit, though that might make it difficult to sell to GOP lawmakers who are wary of such a large tax cut. Mr. Trump told his team to “get it done” in time to release a plan by Wednesday, the people said.
Mr. Trump’s willingness to let deficits run higher also could hinder the passage of tax cuts that are permanent. Congressional Republicans plan on using a procedural tool known as reconciliation that would allow the tax legislation to pass with a 51-vote majority in the Senate, instead of the usual 60 votes. Under those rules, changes can’t add to deficits beyond a decade. (…)
SOFT VS HARD IN GERMAN
Source: ifo Institute via The Daily Shot
Markit’s Germany PMI is also flashing high:
Although manufacturing continued its run of impressive growth in April, a closer look at the latest services data suggests that overall expansion may continue to ease in the coming months. The new business index was the lowest since January and below its 2016 trend level of 53.4. Moreover, outstanding business at service providers fell for the first time in three months and firms were the least optimistic since last November.
The global economic recovery now looks like it’s for real. The latest update to the Brookings-FT Tiger index shows that, after numerous fits and false starts, the recovery has become broad-based and stable, even if not vigorous. The advanced economies are settling into a reasonable growth path, with the specter of deflation having been staved off. The fast-growing emerging market economies such as China and India have gotten through a rocky period and even the more vulnerable emerging markets have turned the corner. (…)
This year is shaping up as one where the apparent economic calm on the surface is offset by rising economic stresses and political tensions that could bubble up and undercut the recovery in 2018 or beyond. Low investment and weak productivity growth make the recovery’s durability questionable while political ferment, protectionist policies, and lack of progress on the reform agenda in most countries could hurt both the quality and sustainability of growth. 2017 is not a year to worry about in itself but a good time to worry about what the future holds.
Here’s how the Composite Index breaks down:
The Real Activity Index also breaks down in many components, on rather important one being consumer demand…
…needed to sustain this:
EARNINGS WATCH
- 109 companies (27.0% of the S&P 500’s market cap) have reported. Earnings are beating by 5.6%, with 75% of companies surpassing bottom-line estimates. Revenues are surprising by 0.5%.
- Expectations are for revenue, earnings, and EPS growth of 6.7%, 9.4%, and 11.4%, respectively.
- EPS is on pace for 15.5%, assuming a typical beat rate for the remainder of the season. (RBC)
SCARY STUFF
Source: Bloomberg via The Daily Shot
But nobody cares…
Bob Farrell’s rule #9: When all the experts and forecasts agree — something else is going to happen.
Finally, here is a chart from Matt Garrett showing how in different periods, top US equities dominated the index performance. The X-axis is the number of top-performing stocks, and the Y-axis is the market cap gained by the members as a percentage of the index’s market cap.
Source: @MattGarrett3 via The Daily Shot
Bob Farrell’s rule #7: Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.
ETFs
(…) In 2014 and 2015, mutual funds, hedge funds and other investors pumped billions into companies that they now see as overvalued, and unlikely to pull off an initial public offering. As venture capitalists became more discerning, investment in U.S. tech startups plummeted by 30% in dollar terms last year from a year earlier. (…)
Venture-capital firms remain flush with cash: They raised $44 billion last year, the most since the dot-com boom.
But investors are staying away from scores of initially well-funded startups that once looked like relatively safe bets, forcing these companies to fight for survival as they burn through their stockpiles of cash and scramble for new money or buyers. (…)
Seemingly every week lately, a well-funded startup is slashing jobs or pulling the plug. (…)
Such closures and cutbacks were rare two years ago when venture capitalists encouraged startups to expand rapidly to edge out competitors. Then when capital became scarcer, investors urged companies to turn profitable, which isn’t an easy pivot. (…)
